Financial Lit - Credit and Consumer Loans

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Annual Percentage Rate (APR)

The actual or true rate of interest paid over the life of a loan; includes all fees and costs.

Average Daily Balance (ADB) Method

A method of computing finance charges by applying interest charges to the ADB of the account over the billing period.

Balance Transfer

A program that enables cardholders to readily transfer credit balances from one card to another.

Bank Credit Card

A credit card issued by a bank or other financial institution that allows the holder to charge purchases at any establishment that accepts it.

Base Rate

The rate of interest a bank uses as a base for loans to individuals and small to midsize businesses.

Cash Advance

A loan that can be obtained by a bank credit cardholder at any participating bank or financial institution.

Credit Bureau

An organization that collects and stores credit information about individual borrowers.

Credit Counselor

A professional financial advisor who assists overextended consumers in repairing budgets for both spending and debt repayment.

Credit Limit

A specified amount beyond which a customer may not borrow or purchase on credit.

Credit Statement

A monthly statement summarizing the transactions, interest charges, fees, and payments in a consumer credit account.

Debt Safety Ratio

The proportion of total monthly consumer credit obligations to monthly take-home pay.

Grace Period

A short period of time, usually 20 to 30 days, during which you can pay your credit card bill in full and not incur any interest charges.

Home Equity Credit Line

A line of credit issued against the existing equity in a home.

Line of Credit

The maximum amount of credit a customer is allowed to have outstanding at any point in time.

Minimum Monthly Payment

In open account credit, a minimum specified percentage of the new account balance that must be paid in order to remain current.

Open Account Credit

A form of credit extended to a consumer in advance of any transaction.

Overdraft Protection Line

A line of credit linked to a checking account that allows a depositor to overdraw the account up to a specified amount.

Personal Bankruptcy

A form of legal recourse open to insolvent debtors, who may petition a court for protection from creditors and arrange for the orderly liquidation and distribution of their assets.

Prepaid Card

A plastic card with a magnetic strip or microchip that stores the amount of money the purchaser has to spend and from which is deducted the value of each purchase.

Retail Charge Card

A type of credit card issued by retailers that allows customers to charge goods and services up to a preestablished amount.

Revolving Line of Credit

A type of open account credit offered by banks and other financial institutions that can be accessed by writing checks against demand deposit or specially designated credit line accounts.

Secured (Collateralized) Credit Cards

A type of credit card that's secured with some form of collateral, such as a bank CD.

Unsecured Personal Credit Line

A line of credit made available to an individual on an as-needed basis.

529 College Savings Plan

A government-sponsored investment vehicle that allows earnings to grow free from federal taxes, so long as they are used to meet college education expenses.

Cash Value (of Life Insurance)

An accumulation of savings in an insurance policy that can be used as a source of loan collateral.

Collateral

An item of value used to secure the principal portion of a loan.

Consumer Finance Company

A firm that makes secured and unsecured personal loans to qualified individuals; also called a small loan company.

Consumer Loans

Loans made for specific purposes using formally negotiated contracts that specify the borrowing terms and repayment.

Discount Method

A method of calculating finance charges in which interest is computed and then subtracted from the principal, with the remainder being disbursed to the borrower.

Installment Loan

A loan that is repaid in a series of fixed, scheduled payments rather than a lump sum.

Lien

A legal claim permitting the lender, in case the borrower defaults, to liquidate the items serving as collateral to satisfy the obligation.

Loan Application

An application that gives a lender information about the purpose of the loan as well as the applicant's financial condition.

Loan Disclosure Statement

A document, which lenders are required to supply borrowers, that states both the dollar amount of finance charges and the APR applicable to a loan.

Simple Interest Method

A method of computing finance charges in which interest is charged on the actual loan balance outstanding.

Affinity Cards

A standard bank credit card issued in conjunction with some charitable, political, or other nonprofit organization.